After computers, cars and oil, will the next target for China's foreign-acquisition binge be telephones? British news reports say Huawei...
BEIJING — After computers, cars and oil, will the next target for China’s foreign-acquisition binge be telephones?
British news reports say Huawei Technologies, China’s biggest maker of telecommunications equipment, is in talks with Marconi on a possible takeover of the struggling British telecom-equipment firm.
The news suggests corporate China hasn’t lost its appetite for foreign assets despite the bitter, highly publicized withdrawal last week of CNOOC’s $18.5 billion bid for U.S. oil and gas producer Unocal.
A Huawei-Marconi deal, if completed, would be hugely symbolic: the purchase of a British industrial landmark that traces its roots to radio’s inventor by a 17-year-old firm that represents China’s new economic vigor and high-tech ambitions.
Huawei didn’t respond yesterday to requests for comment. Marconi issued a statement in London saying it was exploring “all strategic options” with other firms and warned there was no assurance it could make a deal.
Huawei and Marconi make telecom switching equipment, the guts of a phone system the public doesn’t see but that is critically important in the age of cellphones and the Internet.
The deal could be worth $1 billion, according to London’s Sunday Times.
It would add Marconi’s customer network — a key asset in an industry where vendors work closely with buyers — to Huawei’s booming international business and strength in research and development, said Duncan Clark, a telecommunications consultant in Beijing.
“This is not a deal to show how international they are. It’s something that’s logical for the business,” Clark said. “Huawei’s been plugging away at this for years, since before it was fashionable to do so.”
A Huawei-Marconi merger would add to unprecedented high-profile acquisitions by Chinese companies over the past year.
Computer maker Lenovo Group bought IBM’s PC business in an amicable deal. Nanjing Automobile bought MG Rover out of bankruptcy after the British automaker pursued Nanjing and another Chinese company as potential buyers.
Others went less smoothly. CNOOC complained bitterly about political criticism in Washington when it called off its Unocal bid. Haier dropped out of the bidding for Maytag after Whirlpool launched a competing bid.
Huawei and Marconi already have corporate ties; they signed a deal earlier this year to sell each other’s equipment in their home markets.
Marconi is a U.K. institution that traces its roots in part to the company founded in 1897 by Guglielmo Marconi, the Italian inventor of radio.
After reports of Huawei’s interest, Marconi shares rose 14.7 percent yesterday on the London Stock Exchange.
By contrast, Huawei is a newcomer. Founded in 1988 by a former People’s Liberation Army (PLA) officer named Ren Zhengfei, it is one of China’s two leading makers of telecom gear.
Huawei’s early sales were to China’s military. That, with Ren’s background, has led some outsiders to suggest the military controls Huawei. The company denies that.
It says it made a profit of $625 million last year on sales of $3.8 billion. Most significant for its global aspirations, it says more than half of those sales were outside China.
Pride in technology
Huawei prides itself on creating its own technology, boasting that 14,500 of its 30,000 employees are in R&D, and that 90 percent have a bachelor’s degree or higher — an impressive figure in China, where only a tiny fraction of the population gets a university education.
Its headquarters in the southern city of Shenzhen is a California-style enclave of green lawns and glassy modern buildings.
The company enjoys an equally impressive degree of support from the communist government, which has made foreign expansion by Chinese firms a key element in its latest five-year economic plan.
It broke into international markets by targeting developing countries with its low-cost equipment. But more recently, it has begun to move into developed countries.
Little U.S. success
Huawei has struggled to gain a foothold in the U.S. It is best known there for an embarrassing lawsuit by Cisco Systems, which accused it of copying its technology.
Cisco agreed to drop the suit after Huawei agreed to change its products.
For both Huawei and Marconi, the turning point came when British Telecom (BT) awarded a $5.7 billion contract to build a new network.
Huawei was among the winning bidders, while Marconi, a longtime British Telecom supplier, lost out. Marconi cut 800 of its 10,000 jobs and, say news reports, effectively put itself up for sale.
“The BT deal was a rite of passage” for Huawei, said Clark. “It shows they can compete with more established companies.”